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Debt Agreements
12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
DEBT AGREEMENTS

9. DEBT AGREEMENTS

 

Long-term debt consisted of the following as of December 31, 2021 and 2020:

 

      December 31, 2021   December 31, 2020 
(Amounts in thousands)  Maturity  Date  Amount Outstanding   Interest Rate   Amount Outstanding   Interest Rate 
Secured Notes Payable                       
Secured senior convertible note payable   May 27, 2023   $ 6,417       6.0 %   $ —        —   
Secured senior convertible note payable   August 25, 2023     4,833       6.0 %     —        —   
Secured note payable*  February 28, 2020   
        789    12.5%
Secured note payable*  March 1, 2022   
        151    9.0%
Secured note payable*  September 1, 2021   
        11    7.9%
Secured note payable*  November 26, 2021   1,000    9.0%   2,000    15.0%
Secured note payable*  December 26, 2020   
        75    78.99%
Secured note payable*  September 15, 2020   
        855    36.0%
Secured note payable*  October 15, 2020   
        2,008    18.0%
Secured note payable  January 15, 2022   5,205    >8% or Libor +6.75 %        
Equipment financing loan*  November 9, 2023   
        57    8.5%
Equipment financing loan*  December 19, 2023   
        84    6.7%
Equipment financing loan*  January 17, 2024   
        38    6.7%
Secured note payable  January 6, 2021           1,100    10.0%
Total secured notes payable      17,455         7,168      
                        
Notes Payable                       
Note payable  February 16, 2023   11    3.0%        
Note payable*  September 30, 2020   
        500    15.0%
Note payable*  September 30, 2020           175    15.0%
Note payable*  August 31, 2020   
        3,500    18.0%
Notes payable*  December 6, 2019   
        67    18.0%
Note payable*  November 30, 2020   
        500    15.0%
Notes payable*  June 30, 2020   
        380    0.0%
Notes payable*  June 30, 2020   
        166    0.0%
Note payable*  February 16, 2023   
        83    3.0%
Note payable*  September 30, 2020   
        290    12.0%
Notes Payable*  October 13, 2020 through November 30, 2020   
        1,200    18.0%
Notes Payable*  January 31, 2021 through February 23, 2021   
        550    18.0%
PPP loans  May 5, 2022   2    1.0%   455    1.0%

SBA

loan
  May 15, 2050   150    3.8%          
PPP loan  May 14, 2022   
         24    1.0%
PPP loan  August 11, 2025   
         104    1.0%
Total notes payable      163         7,994      
                        
Senior Debentures                       
Senior debenture*  December 31, 2019   
         84    15.0%
Total senior debentures               84      
                        
Convertible Notes Payable                       
Convertible note payable*  January 29, 2021   
        374    24.0%
Convertible note payable*  November 20, 2020   
        2,238    24.0%
Convertible note payable  June 3, 2022   600    5.0%        
Convertible note payable  January 29, 2026   11,150    1.0%        
Total convertible notes payable      11,750         2,612    
 
 
                        
Senior Convertible Debentures                       
Senior convertible debenture  December 31, 2021           250    15.0%
Senior convertible debenture  November 30, 2020           1,000    15.0%
Total senior convertible debentures               1,250      
Total long-term debt      29,368         19,108      
Less unamortized discounts and debt issuance costs      (3,718)        (61)     
Total long-term debt, less discounts and debt issuance costs      25,650         19,047      
Less current portion of long-term debt      (13,377)        (18,341)     
Debt classified as long-term debt     $12,273        $706      

 

*

Note was in default in 2020. Refer to further discussion below.

Secured Senior Convertible Note payable

 

On May 27, 2021, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company sold to the investor a senior secured convertible promissory note in the original principal amount of $11.0 million and warrants to purchase up to 1,820,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price of $10 million (representing an original issue discount of 10.0% on the note), of which the Company received $5 million on May 28, 2021 and $5 million on June 2, 2021. On August 25, 2021, the Company entered into a first amendment and limited waiver to the securities purchase agreement dated as of May 27, 2021 and amended and restated the convertible note.

 

The amended note bears interest at the rate of 6% per annum from the date of funding and matures on May 27, 2023. The Company is required to make monthly interest and principal payments in 18 equal monthly instalments of $611 thousand each, commencing in November, 2021. So long as shares of the Company’s common stock are registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction on the number of shares or manner of sale, the Company has the right to make interest and principal payments in the form of additional shares of common stock, which shares will be valued at 90% of the average of the five lowest daily volume weighted average price per share of the common stock during the ten trading days immediately preceding the date of issuance of such shares of common stock. As of December 31, 2021, an aggregate principal amount of $6.4 million was outstanding under this note.

 

The amended note is convertible by the holder in whole or in part at any time after the six-month anniversary of the issuance date into shares of the Company’s common stock at a conversion price of $3.00 per share, subject to adjustment and certain limitations. The Company has the right to prepay the amended note at any time with no penalty. However, should the Company exercise its buy-back right, the holder of the amended note will have the option of converting 25% of the outstanding principal amount of the note into shares of common stock at a conversion price equal to the lower of (A) the repayment price, or (B) the conversion price then in effect. The amended note is guaranteed by the Company’s subsidiaries and is secured by a first priority lien on substantially all of the Company’s assets and properties and the assets and properties of its subsidiaries, subject only to the liens securing the approximately $1 million principal amount of outstanding indebtedness of one of the Company’s subsidiaries.

 

The warrants are exercisable to purchase up to 1,820,000 shares of the Company’s common stock for a purchase price of $3.00 per share, subject to adjustment, at any time on or prior to May 27, 2026, and may be exercised on a cashless basis if the shares of common stock underlying the Warrants are not then registered under the Securities Act.

 

In April of 2022 this loan was technically in default in payment to them due to the non-compliant state of our securities filings. Upon such a default, the lender is entitled to accelerate the balance of the note. Additionally, the lender is entitled to a default conversion rate at 80% of the average of the three lowest daily volume weighted average price during the 20 trading days prior to the delivery of the applicable notice of conversion. To date, while the lender has reserved their rights, the Company has been in dialogue with them about the late filings and has a plan to regain compliance in such filings. Other than a 5% default penalty and the default conversion rate, no adverse actions have been taken against the Company and we expect none insofar as filing currency and compliance is regained.

 

On August 25, 2021, the Company entered into a securities purchase agreement with an investor, pursuant to which we sold to the investor a senior secured convertible promissory note in the original principal amount of $5.8 million and warrants to purchase up to 1,315,789 shares of our common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price of $5 million (representing an original issue discount of 16.0% on the note), which $5 million the Company received on August 26, 2021.

 

The note bears interest at the rate of 6% per annum from the date of funding and matures on August 25, 2023. The Company is required to make monthly interest and principal payments in 18 equal monthly instalments of $322 thousand each, commencing in November, 2021. So long as shares of our common stock are registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction on the number of shares or manner of sale, the Company has the right to make interest and principal payments in the form of additional shares of common stock, which shares will be valued at 90% of the average of the five lowest daily volume weighted average price per share of the common stock during the ten trading days immediately preceding the date of issuance of such shares of common stock. As of December 31, 2021, an aggregate principal amount of $4.8 million was outstanding under this note.

 

In April of 2022 this loan was in default. Upon such a default, the lender is entitled to accelerate the balance of the note. Additionally, the lender is entitled to a default conversion rate at 80% of the average of the three lowest daily volume weighted average price during the 20 trading days prior to the delivery of the applicable notice of conversion. To date, while the lender has reserved their rights, the Company has been in amicable dialogue with them about the late filings and has a plan to regain compliance in such filings in the very near future. Other than a 5% default penalty and the default conversion rate, no adverse actions have been taken against the Company and we expect none insofar as filing currency and compliance is regained quickly.

 

The note is convertible by the holder in whole or in part at any time after the six-month anniversary of the issuance date into shares of the Company’s common stock at a conversion price of $3.00 per share, subject to adjustment and certain limitations. The Company has the right to prepay the amended note at any time with no penalty. However, should the Company exercise its buy-back right, the holder of the amended note will have the option of converting 33 1/3% of the outstanding principal amount of the note into shares of common stock at a conversion price equal to the lower of (A) the repayment price, or (B) the conversion price then in effect. The note is guaranteed by the Company’s subsidiaries and is secured by a first priority lien on substantially all of the Company’s assets and properties and the assets and properties of its subsidiaries, subject only to the liens securing the approximately $1 million principal amount of outstanding indebtedness of one of our subsidiaries.

 

The warrants are exercisable to purchase up to1,315,789 shares of the Company’s common stock for a purchase price of $3.00 per share, subject to adjustment, at any time on or prior to August 25, 2026, and may be exercised on a cashless basis if the shares of common stock underlying the Warrants are not then registered under the Securities Act.

 

In April of 2022 this loan was in default. Upon such a default, the lender is entitled to accelerate the balance of the note. Additionally, the lender is entitled to a default conversion rate at 80% of the average of the three lowest daily volume weighted average price during the 20 trading days prior to the delivery of the applicable notice of conversion. To date, while the lender has reserved their rights, the Company has been in dialogue with them about the late filings and has a plan to regain compliance in such filings. Other than a 5% default penalty and the default conversion rate, no adverse actions have been taken against the Company and we expect none insofar as filing currency and compliance is regained.

 

In June of 2022 this loan was technically in default in payment to them, and in the non-compliant state of our securities filings. The lender has been working very closely with the Company and providing assistance and approvals as we have undertaken our own voluntary restructuring, including our plan for a reduction of overhead and personnel via divestment of non and underperforming assets and non-core activities in favor of a refocus on our true core competencies in 5G and beyond technology.

 

Secured Notes Payable

  

In August 2016, InduraPower entered into a promissory note not to exceed the principal amount of $550 thousand bearing interest at 8.5% per annum with a maturity date of August 31, 2018. InduraPower could draw funds under the note through February 28, 2017. Interest on this note was payable monthly and the full principal balance was due at maturity. On September 11, 2019, the note was amended with both parties agreeing that the outstanding balance of $814 thousand would be due on February 28, 2020. This promissory note was past due and accruing interest at an increased default rate of 12.5% per annum. This promissory note was secured by substantially all of the assets of InduraPower. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.

 

In August 2016, InduraPower entered into a promissory note in the principal amount of $450 thousand that bears interest at 9.0% per annum and matures on March 1, 2022. Interest-only payments were due monthly beginning October 1, 2016 through March 1, 2017. Monthly payments of $9 thousand for interest and principal were due on this note for the following 60 consecutive months. This promissory note was secured by all assets, certain real estate and cash accounts of InduraPower, and was guaranteed by certain officers of InduraPower. The aggregate principal amount of this note was fully repaid during the second quarter of 2021.

 

In August 2016, InduraPower entered into a promissory note in the principal amount of $50 thousand with an interest rate of 7.9% per annum and a maturity date of September 1, 2021. Beginning April 1, 2017, equal monthly payments of $1 thousand for interest and principal were due on the note for 60 consecutive months. This promissory note was currently past due. This promissory note was secured by business equipment, certain real estate and cash accounts of InduraPower and was guaranteed by certain officers of InduraPower. The aggregate principal amount of this note was fully repaid during the second quarter of 2021.

 

In November 2019, DragonWave entered into a secured loan agreement with an individual lender pursuant to which DragonWave received a $2 million loan bearing interest at the rate of 9.0% per annum that matured on November 26, 2021. Upon an event of default, the interest rate would have automatically increased to 15% per annum on any unpaid principal and interest, compounded monthly, and all unpaid principal and accrued interest would become due on-demand. Accrued interest was calculated on a compound basis and was payable semi-annually in May and November of each year. The loan was secured by all of the assets of DragonWave and was guaranteed by ComSovereign. The debt issuance costs were the result of the issuance of 350,000 shares of common stock of the Company and a cash payment of $80 thousand. The Company defaulted on this loan during 2021, causing the interest rate to increase to a monthly compounded rate of 15% per annum, a late charge of 5% to be incurred, and the loan and accrued interest to become due on-demand. Amounts recorded as debt discounts and issuance costs were fully amortized and recognized in interest expense during 2021 as a result of the loan becoming due on-demand from the default event. As of December 31, 2021 and 2020, an aggregate principal amount of $1.0 million and $2.0 million, respectively was outstanding under this loan. On January 26, 2021, $1.0 million of the principal amount of this loan and all accrued interest with a combined total of $1.2 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 295,674 shares of issued common stock of the Company, along with warrants to purchase up to 295,674 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. This loan has been in default since November 26, 2021. To date, while the lender has reserved their rights, the Company has been in amicable dialogue with them about the default. No adverse actions have been taken against the Company.

 

On February 26, 2020, the Company entered into a $0.6 million secured business loan bearing interest at 78.99% per annum which matured on December 26, 2020. Principal and interest payments of $19 thousand were due weekly. The loan was secured by the assets of the Company. As of December 31, 2020, an aggregate principal amount of $75 thousand was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company assumed a secured loan with FirstBank in the principal amount of $979 thousand bearing interest at 5% per annum and with a maturity date of June 1, 2020. On August 5, 2020, the maturity date of this loan was extended to September 15, 2020, with a single payment of all unpaid principal and accrued interest then due, and the interest rate was increased to 36% per annum for any principal balance remaining unpaid past the extended maturity date. The loan was secured by certain assets of Sovereign Plastics. This loan was subjected to covenants, whereby Sovereign Plastics was required to meet certain financial and non-financial covenants at the end of each fiscal year. As of December 31, 2020, an aggregate principal amount of $855 thousand was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

 

On March 19, 2020, the Company entered into a secured loan agreement in the amount of $2.0 million bearing interest at 5% per annum with a maturity date of August 31, 2020. On August 5, 2020, the maturity date of this loan was extended to October 15, 2020. Upon maturity, the interest rate automatically increased to 18% per annum, and a late charge of 5% was charged for any balance overdue by more than 10 days. Interest payments of $8 thousand were due monthly, with the full principal amount due at maturity. The loan was secured by certain intellectual property assets of the Company. The proceeds of the loan were used to repay the balance of the CNB Note (revolving line of credit) that was entered into in 2017. As of December 31, 2020, an aggregate principal amount of $2.0 million was outstanding and past due under this loan. On January 26, 2021, the aggregate principal amount of this loan and accrued interest with a combined total of $2.3 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, plus a 10,000 unit conversion bonus, resulting in the issuance of 552,231 shares of issued common stock of the Company, along with warrants to purchase up to 552,231 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company:

 

  assumed an equipment financing loan with an aggregate principal balance of $65 thousand, which was secured by the related equipment, bearing interest at 8.5% per annum. Monthly principal and interest payments of approximately $2 thousand was due over the term. At December 31, 2020, an aggregate amount of principal of $57 thousand was outstanding and past due under this loan. However, there were no penalties associated with this default. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

 

  assumed an equipment financing loan with an aggregate principal balance of $96 thousand, which was secured by the related equipment, bearing interest at 6.7% per annum. Monthly principal and interest payments of approximately $2 thousand was due over the term. At December 31, 2020, an aggregate amount of principal of $84 thousand was outstanding and past due under this loan. However, there were no penalties associated with this default. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

 

  assumed an equipment financing loan with an aggregate principal balance of $44 thousand, which was secured by the related equipment, bearing interest at 6.7% per annum. Monthly principal and interest payments of approximately $1 thousand was due over the term. At December 31, 2020, an aggregate amount of principal of $38 thousand was outstanding and past due under this loan. However, there were no penalties associated with this default. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

 

On December 8, 2020, the Company entered into a secured loan agreement in the aggregate principal amount of $1.1 million with an original issue discount of $0.1 million, that bore interest at the rate of 10% per annum and matures on January 6, 2021. Upon an event of default, the interest rate automatically increased to 36% per annum on any unpaid principal, or the maximum amount permitted by applicable law, compounded monthly, and all unpaid principal and accrued interest could have become due on-demand. Accrued interest and principal were due in full on the maturity date. A late charge of 10% could have been charged for any balance not paid when due. The loan was guaranteed by VNC and was secured by the Company’s equity interest in VNC, all of the assets of VNC and certain intellectual property assets of the Company. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 23,334 shares of his personally owned, issued and outstanding common stock of the Company to the lender and brokers, as part of this transaction. The shares had a total fair value of $143 thousand. The Company accounted for this as a contribution from Mr. Hodges, with $0.1 million assigned as debt discounts for additional consideration to the lender, and $41 thousand assigned as debt issuance costs to the brokers. The Company incurred debt issuance costs to the placement agent of this transaction in the amount of $50 thousand. For the fiscal year ended December 31, 2020, $232 thousand of the debt discounts and issuance costs were amortized and recognized in interest expense in the Consolidated Statement of Operations. As of December 31, 2020, there were $61 thousand of debt discounts and issuance costs remaining. As of December 31, 2020, an aggregate principal amount of $1.1 million was outstanding under this loan. On January 26, 2021, $350 thousand of the principal amount of this loan and accrued interest with a combined total of $496 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 119,418 shares of issued common stock of the Company, along with warrants to purchase up to 119,418 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $750 thousand principal amount of this loan was fully repaid during the first quarter of 2021.

 

On January 29, 2021, the Company entered into a secured $5.3 million term loan that bore interest at the higher rate of 8% or LIBOR plus 6.75%, that matured in January 2022 in connection with our acquisition of the Tucson Building. That note was secured by a deed of trust on the Tucson Building. On January 31, 2022, we completed the sale of the Tucson Building and repaid that outstanding secured term loan.

 

On May 27, 2021, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company sold to the investor a senior secured convertible promissory note in the original principal amount of $11 million and warrants to purchase up to 1,820,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price of $10 million (representing an original issue discount of 10.0% on the note), of which the Company received $5,000,000 on May 28, 2021 and $5 million on June 2, 2021. On August 25, 2021, the Company entered into a first amendment and limited waiver to the securities purchase agreement dated as of May 27, 2021 and amended and restated the convertible note.

 

The amended note bears interest at the rate of 6% per annum from the date of funding and matures on May 27, 2023. The Company is required to make monthly interest and principal payments in 18 equal monthly instalments of $611 thousand each, commencing in November, 2021. So long as shares of the Company’s common stock are registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction on the number of shares or manner of sale, the Company has the right to make interest and principal payments in the form of additional shares of common stock, which shares will be valued at 90% of the average of the five lowest daily volume weighted average price per share of the common stock during the ten trading days immediately preceding the date of issuance of such shares of common stock. As of December 31, 2021, an aggregate principal amount of $6.4 million was outstanding under this note.

 

Notes Payable

 

In September 2017, ComSovereign entered into a promissory note in the principal amount of $138 thousand that bore interest at a rate of 12% per annum and was due on October 17, 2017. The note was repaid during fiscal year 2019. On June 10, 2019, ComSovereign entered into a new promissory note with the same lender for $0.2 million with an original issue discount of $6 thousand and a maturity date of July 9, 2019. The full $0.2 million balance was due at maturity. Since this note was not repaid upon maturity, subsequent interest was accrued at an increased rate of 18% per annum. Additionally, on August 14, 2019, ComSovereign borrowed from the same lender an additional $0.2 million promissory note that matured on September 1, 2019. As this note was not repaid upon maturity, subsequent interest was accrued at an increased rate of 18% per annum. As of December 31, 2019, an aggregate principal amount of $0.4 million was outstanding under these notes. On August 5, 2020, the aggregate principal amount of these note and accrued interest in the amount of $489 thousand was fully extinguished in exchange for 108,560 shares of issued common stock of the Company with a fair value of $4.53 per share.

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller on a promissory note in the principal amount of $0.5 million bearing interest at 12.0% per annum with a maturity date of October 17, 2017. On October 1, 2019, the maturity date was extended until September 30, 2020 and the interest rate was reduced to 10% per annum. All unpaid accrued interest from October 2017 through September 30, 2019 was converted into 50,000 shares of common stock of the Company. On April 21, 2020, all unpaid accrued interest from October 1, 2019 through December 31, 2019 was converted into 4,832 shares of issued common stock of the Company. Accrued interest and the full principal balance were due at maturity. Upon maturity, the interest rate increased to 15% per annum for any balance overdue by more than 5 days. As of December 31, 2020, an aggregate principal amount of $0.5 million was outstanding under this note, and was past due at December 31, 2020. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $562 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 135,324 shares of issued common stock of the Company, along with warrants to purchase up to 135,324 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller of a promissory note in the principal amount of $175 thousand bearing interest at the rate of 15% per annum and was due on November 30, 2017. The interest rate increased to 18% per annum when the note became past due. On October 1, 2019, ComSovereign amended the promissory note to extend the maturity date to September 30, 2020 and to change the interest rate to 10% per annum. Both parties to the note also agreed to convert all unpaid accrued interest into 3,334 shares of common stock of the Company, valued at $44 thousand. Accrued interest and principal were due and payable at maturity. Upon maturity, the interest rate increased to 15% per annum for any balance overdue by more than 5 days. As of December 31, 2020, an aggregate principal amount of $175 thousand was outstanding under this note and was past due. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.

 

In October 2017, DragonWave entered into a 90-day promissory note in the principal amount of $4.4 million and received proceeds of $4.0 million. In January 2018, the promissory note was amended to accrue interest at the rate of 8% per annum and to extend the maturity date another 90 days. In August 2018, the maturity date was extended to December 31, 2018 with new payment terms. In September 2018, the maturity date was extended to February 28, 2019 with new payment terms. In October 2018, DragonWave amended the promissory note to clarify the payment of interest. On September 3, 2019, the promissory note was increased to $5.0 million as all unpaid accrued interest was added to the principal balance. Additionally, the maturity date was extended to March 30, 2020 and the interest rate was changed to 10% per annum. Under this new amendment, interest payments were due and payable monthly. On April 21, 2020, the maturity date of this note was extended to August 31, 2020, the interest rate was increased to 12% per annum, and the Company provided to the lender 33,334 fully paid and non-assessable shares of its common stock that have been treated as debt issuance costs. On August 5, 2020, $1.5 million principal amount of this note was extinguished in exchange for 333,334 shares of common stock of the Company with a fair value of $4.53 per share. This loan was past due at December 31, 2020. However, there were no penalties associated with this default. As of December 31, 2020, an aggregate principal amount of $3.5 million was outstanding under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $4.2 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 1,014,716 shares of issued common stock of the Company, along with warrants to purchase up to 1,014,716 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

On June 10, 2019, ComSovereign entered into a promissory note in the principal amount of $0.2 million with an original issue discount of $6 thousand and a maturity date of July 9, 2019. The full $0.2 million balance was due at maturity. Since this note was not repaid and was past due, interest was being accrued at an increased rate of 18% per annum. On August 5, 2020, the aggregate principal amount of this note and accrued interest in the amount of $245 thousand was fully extinguished in exchange for 54,483 shares of issued common stock of the Company with a fair value of $4.53 per share. 

 

On November 7, 2019, ComSovereign entered into several promissory notes in the aggregate principal amount of $450 thousand that bore an effective interest rate at 133% per annum due to a single payment incentive, which matured on December 6, 2019. An aggregate principal amount of $0.2 million was owed to three related parties out of the $450 thousand promissory notes. Accrued interest and principal were due and payable at maturity. The Company repaid $250 thousand of the aggregate principal amount of this promissory note during the first quarter of the 2020. An additional $133 thousand of the aggregate principal amount of this promissory note, along with accrued interest and associated late fee penalties of $52 thousand, was fully extinguished on August 5, 2020 in exchange for 41,093 shares of issued common stock of the Company with a fair value of $4.53 per share. As of December 31, 2020, the aggregate principal amount of $67 thousand was outstanding and past due under these notes. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

 

On March 5, 2020, the Company sold a promissory note in the principal amount of $0.5 million that matured on November 30, 2020 for a purchase price of $446 thousand. Additionally, in lieu of interest, the Company issued to the lender 16,667 shares of its common stock with a fair value of $57 thousand, which was recognized as a debt discount and amortized to interest expense over the term of the note. Any principal balance remaining unpaid past the maturity date accrued interest at a rate of 15% per annum. As of December 31, 2020, an aggregate principal amount of $0.5 million was outstanding and past due under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $512 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 123,305 shares of issued common stock of the Company, along with warrants to purchase up to 123,305 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company:

 

  entered into several promissory notes with the sellers in the aggregate principal amount of $410 thousand that did not bear interest and has a maturity date of June 30, 2020 and monthly principal payments. As of December 31, 2020, the aggregate amount of $380 thousand was outstanding and past due under these notes. However, there were no penalties associated with this default. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

 

  agreed to pay an aggregate of $166 thousand to the sellers on or before June 30, 2020. The agreement was not interest bearing. As of December 31, 2020, an aggregate amount of $166 thousand was outstanding and past due under these notes. However, there were no penalties associated with this default. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

 

  assumed a note payable in the amount of $87 thousand bearing interest at 3% per annum and with a maturity date of February 16, 2023. Monthly payments in the amount of $4 thousand for principal and interest are due over the term. As of December 31, 2021 and 2020, an aggregate principal amount of $11 thousand and $83 thousand, respectively, was outstanding and past due under this note. However, there were no penalties associated with this default and amounts due were current as of the filing date of this Report.

 

On May 29, 2020, the Company entered into a promissory note in the principal amount of $290 thousand with an original issue discount of $40 thousand and a maturity date of September 30, 2020. The full $290 thousand balance was due at maturity, with interest accruing at a rate of 12% per annum for any principal balance remaining unpaid past the maturity date. As of December 31, 2020, an aggregate principal amount of $290 thousand was outstanding and past due under this note. On January 26, 2021, the aggregate principal amount of this note, a 10% principal bonus, and accrued interest with a combined total of $330 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 79,579 shares of issued common stock of the Company, along with warrants to purchase up to 79,579 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

Between July 2, 2020 and August 21, 2020, the Company borrowed an aggregate of $1.2 million from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50 thousand and $0.2 million. The notes had maturity dates between October 13, 2020 and November 30, 2020 bearing interest at a rate of 15% per annum, with interest accruing at an annually compounded rate of 18% per annum for any principal balance remaining unpaid past the maturity date. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 96,634 shares of his personally owned, issued and outstanding common stock of the Company to the accredited investors and brokers, as part of this transaction. The shares had a total fair value of $479 thousand. The Company accounted for this as a contribution from Mr. Hodges, with $399 thousand assigned as debt discounts for additional consideration to the accredited investors, and $80 thousand assigned as debt issuance costs to the brokers. The Company incurred additional debt issuance costs to the brokers of this transaction in the amount of $21 thousand. The amounts recorded as debt discounts and issuance costs were fully amortized and recognized in interest expense during the current fiscal year. As of December 31, 2020, an aggregate principal amount of $1.2 million was outstanding and past due under these notes. On January 26, 2021, $750 thousand of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $886 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 213,496 shares of issued common stock of the Company, along with warrants to purchase up to 213,496 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $450 thousand aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

 

Between November 4, 2020 and November 24, 2020, the Company borrowed an aggregate of $550 thousand from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50 thousand and $0.1 million. The notes had maturity dates between January 31, 2021 and February 23, 2021 and bore interest at a rate of 15% per annum, with interest accruing at an annually compounded rate of 18% per annum for any principal balance remaining unpaid past the maturity date. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 38,334 shares of his personally owned, issued and outstanding common stock of the Company to the accredited investors, as part of this transaction. The Company accounted for this as a contribution from Mr. Hodges, with the total fair value of the shares of $260 thousand assigned as debt discounts for additional consideration to the accredited investors. The Company defaulted on these notes during the 2020 fiscal year, causing the interest rate to increase to an annually compounded rate of 18% per annum, and the note and accrued interest to become due on-demand. The amounts recorded as debt discounts were fully amortized and recognized in interest expense during the 2020 fiscal year as a result of the notes becoming due on-demand from the default event. As of December 31, 2020, an aggregate principal amount of $550 thousand was outstanding under these notes. On January 26, 2021, $0.5 million of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $566 thousand, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of 136,324 shares of issued common stock of the Company, along with warrants to purchase up to 136,324 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $50 thousand aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

 

Between April 30 and May 26, 2020, six of the Company’s subsidiaries received loan proceeds in the aggregate amount of $455 thousand under the Paycheck Protection Program (“PPP”). The PPP loan has a maturity of 2 years and an interest rate of 1% per annum. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable pursuant to section 1106 of the CARES Act, after a period of up to 24 weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness shall be calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, although no more than 40 percent of the amount forgiven can be attributable to non-payroll costs. Further, the amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period of up to 24 weeks. As of December 31, 2021, an aggregate amount of principal of $2 thousand was outstanding under these loans. During the year ended December 31, 2021, an aggregate amount of $0.7 million had been forgiven under these loans. Additional PPP loans were applied for in 2021 and were forgiven in 2021.

 

In connection with the VNC acquisition on July 6, 2020, the Company assumed a PPP loan in the principal amount of $24 thousand bearing interest at 1% per annum and with a maturity date of May 14, 2022. Terms are consistent with the Company’s other PPP loans. As of December 31, 2020, an aggregate amount of principal amount of $24 thousand was outstanding under this loan. This loan was forgiven during 2021.

 

On August 11, 2020, one of the Company’s subsidiaries received loan proceeds in the aggregate amount of $104 thousand under the PPP. The PPP loan has a maturity of 5 years and an interest rate of 1% per annum. Terms are consistent with the Company’s other PPP loans. As of December 31, 2020, an aggregate principal amount of $104 thousand was outstanding under this loan. This loan was forgiven during 2021.

 

In connection with our acquisition of Fastback on January 29, 2021, we issued to the sellers $1.5 million aggregate principal amount of term promissory notes. The individual principal amounts of the notes ranged from $2 thousand to $393 thousand. These notes bore interest at the rate of 10% per annum and matured on the earlier of (i) January 1, 2022, (ii) the date on which an aggregate of $6.0 million worth of products and services were sold following the acquisition date by (A) Fastback or (B) our company and our subsidiaries (other than Fastback) to certain specified Fastback customers, or (iii) the date on which we issued and sold shares of our common stock or debt securities to investors in a bona-fide arms-length financing transaction for aggregate consideration of at least $12.0 million. Interest was payable in cash semiannually in arrears on each June 1 and December 1, commencing on June 1, 2021, and on the maturity date. Upon an event of default, the interest rate would have automatically increased to 15% per annum compounded semiannually. These notes matured on February 10, 2021 and were repaid in full in the first quarter 2021.

 

In connection with the RF Engineering acquisition on July 16, 2021, the Company assumed a SBA loan in the principal amount of $150 thousand bearing interest at 3.75% per annum and with a maturity date of May 15, 2050. As of December 31, 2021, an aggregate amount of principal amount of $150 thousand was outstanding under this loan.

 

Senior Debentures

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller of $0.1 million aggregate principal amount of 8% Senior Convertible Debentures of the seller that bore interest at the rate of 8% per annum and matured on December 31, 2019. Interest was payable semi-annually in cash or, at the seller’s option, in shares of the seller’s common stock at the conversion price that was equal to the lesser of (1) $24.00 or (2) 80% of the common stock price offered under the next equity offering. On April 30, 2020, these debentures were modified to remove the conversion feature and only have settlement through cash. These debentures were past due and interest accrues at a rate of 15% per annum.  As of December 31, 2020 an aggregate principal amount of $84.0 thousand was outstanding under these debentures. The aggregate principal amount of this debenture was fully repaid during the first quarter of fiscal 2021.

 

Convertible Notes Payable

 

On April, 29, 2020, the Company sold a convertible promissory note in the principal amount of $286 thousand with an original issue discount of $36 thousand that bore interest at a rate of 12.5% per annum and matured on January 29, 2021. Accrued interest and principal was due on the maturity date. Upon maturity, the interest rate would have automatically increased to 18% per annum or the maximum amount permitted by applicable law on any unpaid principal and accrued interest. The Company also issued warrants to purchase 52,910 shares of common stock that are exercisable for a purchase price of $2.97 per share at any time on or prior to April 29, 2025. Warrants to purchase up to 9,260 shares of common stock, at an exercise price of 110% of the initial conversion price of the notes (i.e., an exercise price of $2.97), at any time on or prior to April 29, 2025, were also issued to an unrelated third-party as a placement fee for the transaction. In connection with this note, the Company recognized a BCF of $115 thousand, calculated a fair value of $45 thousand associated with the issuance of warrants to the note holder, and debt issuance costs of $39 thousand, which were all recorded as debt discounts. On July 28, 2020, the Company defaulted on this note under the related Registration Rights Agreement by not filing a registration statement within 90 days of the note origination date. As a result, the aggregate principal balance increased by $97 thousand, which was composed of an $88 thousand penalty payment-in-kind and an $9 thousand interest payment-in-kind, representing 130% of the outstanding principal and accrued interest balance on the default date. In addition, the interest rate was increased to 24% per annum, and the note and accrued interest was due on-demand. On September 29, 2020, the note holder converted the full principal of $383 thousand and all accrued interest of $16 thousand into 147,824 shares of common stock of the Company. During the year ending December 31, 2020, all amounts recorded as debt discounts totaling $235 thousand were amortized and recognized in interest expense in the consolidated statement of operations.

 

On July 7, 2020, the Company sold to the same investor as the April 29, 2020 note an additional convertible promissory note in the principal amount of $286 thousand with an original issue discount of $36 thousand that bore interest at a rate of 12.5% per annum, and warrants to purchase an additional 52,910 shares of common stock. Warrants to purchase up to 9,260 shares of common stock were also issued to an unrelated third-party as a placement fee for the transaction. Terms and maturities are similar to the April 29, 2020 note and warrants. In connection with this note, the Company recognized a BCF of $140 thousand, calculated a fair value of $50 thousand associated with the issuance of warrants to the note holder, and debt issuance costs of $36 thousand, which were all recorded as debt discounts. On July 28, 2020, the Company defaulted on this note under the related Registration Rights Agreement by not filing a registration statement within 90 days of the initial April 29, 2020 note origination date. As a result, the aggregate principal balance increased by $88 thousand, which was composed of an $86 thousand penalty payment-in-kind and a $2 thousand interest payment-in-kind, representing 130% of the outstanding principal and accrued interest balance on the default date. In addition, the interest rate was increased to 24% per annum, and the note and accrued interest was due on-demand. During the year ended December 31, 2020, all amounts recorded as debt discounts totaling $261 thousand were amortized and recognized in interest expense in the consolidated statement of operations. As of December 31, 2020, there were $0 of debt discounts remaining as a result of the note becoming due on-demand from the default event, and an aggregate principal amount of $374 thousand was outstanding under this note. On January 22, 2021, the note holder converted the full principal of $374 thousand and all accrued interest of $44 thousand into 155,013 shares of common stock of the Company.

  

On August 21, 2020, the Company sold a convertible promissory note in the principal amount of $1.7 million with an original issue discount of $0.2 million that bore interest at a rate of 5.0% per annum and matured on November 20, 2020. Accrued interest and principal were due on the maturity date. Upon maturity, the interest rate would have automatically increased to the lesser of 18% per annum or the maximum amount permitted by applicable law on any unpaid principal and accrued interest. Upon a default event, a penalty would have been incurred of 130% of the outstanding principal and accrued interest balance on the default date, the interest rate would have increased to 24% per annum, and the note and accrued interest would have become due on-demand. Following the maturity date, the note was convertible into shares of common stock at a conversion price equal to 65% of the lowest volume weighted average price of the common stock during the 20 consecutive trading days immediately preceding the conversion date, which the Company recognized as a BCF of $160 thousand. As additional consideration for the loan, the Company issued to the lender 133,334 shares of common stock at a fair value of $10.05 per share. Warrants to purchase up to 17,857 shares of common stock that are exercisable for a purchase price of $8.40 per share at any time on or prior to August 20, 2025, were also issued to an unrelated third-party as a placement fee for the transaction. In connection with this note, the Company recognized a debt discount of $1.3 million associated with the issuance of shares to the note holder, and debt issuance costs of $231 thousand, which were all recorded as debt discounts. On November 21, 2020, the Company defaulted on this note by not repaying the principal and accrued interest by the maturity date, which resulted in the aggregate principal balance increasing by $538 thousand, which was composed of an $517 thousand penalty payment-in-kind and a $22 thousand interest payment-in-kind, representing 130% of the outstanding principal and accrued interest balance on the default date. In addition, the interest rate was increased to 24% per annum. During the year ended December 31, 2020, all amounts recorded as debt discounts totaling $1.9 million were amortized and recognized in interest expense in the consolidated statement of operations. As of December 31, 2020, an aggregate principal amount of $2.2 million was outstanding and past due under this note. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.

 

In connection with its acquisition of Fastback on January 29, 2021, the Company issued to the sellers $11.2 million aggregate principal amount of convertible promissory notes. The individual principal amounts of the notes ranged from $6 thousand to $5.6 million. These notes initially bear interest at the rate of 1.01% per annum, which is to be adjusted to the prime rate as published by the Wall Street Journal on each annual anniversary of the issuance date, and mature on January 29, 2026. Interest is payable in cash annually in arrears on each January 1. Commencing on January 29, 2022, the outstanding principal and accrued interest on these notes may be converted in full to shares of the Company’s common stock at a conversion price of $5.22 per share, subject to adjustment. Upon an event of default, the interest rate will automatically increase to 15% per annum compounded annually, and all unpaid principal and accrued interest may become due on-demand. Principal and any unpaid accrued interest are due on the maturity date. Upon maturity, the interest rate will automatically increase to 15% per annum compounded annually on any unpaid principal. As of December 31, 2021, an aggregate principal amount of $11.15 million was outstanding.

 

There is a provision in the notes held by the selling shareholders of our Fastback radio line which indicates that an event of default can be declared if the Company fails to file its requisite securities filings timely and the event(s) is not cleared. To date, while the holders have reserved their rights, the Company has been in amicable dialogue with them about the late filings and has a plan to regain compliance in such filings in the very near future. No adverse actions have been taken against the Company and we expect none insofar as filing currency and compliance is regained quickly.

 

In connection with the acquisition of Innovation Digital on June 3, 2021, the Company issued to the seller a convertible promissory note in the principal amount of $0.6 million. The convertible promissory bears interest at the rate of 5% per annum, matures on June 3, 2022 and is convertible into shares of the Company’s common stock commencing on December 3, 2021 at an initial conversion price of $2.35 per share; provided, however, that on the maturity date, the holder may (i) demand payment of the entire outstanding principal balance and all unpaid accrued interest under Convertible Note or (ii) continue to hold the Convertible Note, in which case the convertible note shall thereafter accrue interest at the rate of 10% per annum, compounded annually, until such time as (x) the holder makes a demand of payment and the convertible note is repaid in full; or (y) the convertible note is converted in full. If the convertible note is converted into shares of the Company’s common stock after the maturity date of the convertible note, the conversion price will be the closing price of our common stock on the date the conversion notice is provided to the Company. As of December 31, 2021, an aggregate principal amount of $0.6 million was outstanding under this note.

 

On June 3, 2022 this note went into default. On June 23, the Company reached an agreement with the former owners of Innovation Digital to return to the former owners of Innovation Digital 15 patents and 5 pending or provisional patents to those former owners in return for the cancelation of the outstanding $600,000 promissory note, the return of 500,000 shares of common stock, and the waiver of certain severance payments.

 

Senior Convertible Debentures

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller of $25 thousand aggregate principal amount of 8% Senior Convertible Debentures of the seller that bore interest at the rate of 8% per annum and matured on December 31, 2019. Interest was payable semi-annually in cash or, at the seller’s option, in shares of the seller’s common stock at the conversion price that was equal to the lesser of (1) $24.00 or (2) 80% of the common stock price offered under the next equity offering. These debentures were past due and interest accrued at a rate of 15% per annum. The aggregate principal amount of $25 thousand under these debentures was fully repaid during the first quarter of fiscal 2020.

 

On September 24, 2019, ComSovereign sold $250 thousand aggregate principal amount of 10% Senior Convertible Debentures that bore interest at a rate of 10% per annum and matured on December 31, 2021. Interest was payable semi-annually in arrears in June and December of each year in cash or, at ComSovereign’s option, in shares of common stock at the conversion price that is equal to the lesser of (1) $7.50 or (2) a future effective price per share of any common stock sold by ComSovereign. Upon an event of default, the interest rate would have automatically increased to 15% per annum. In connection with these debentures, ComSovereign recognized a BCF charge of $69 thousand and calculated a fair value of $181 thousand associated with the issuance of warrants, both of which were recorded as debt discounts. On April 21, 2020, all unpaid accrued interest through December 31, 2019 was converted into 2,234 shares of issued common stock of the Company. Also on April 21, 2020, all the outstanding warrants were exercised at $0.03 per share into 94,510 issued shares of the Company’s common stock, resulting in full recognition in interest expense of the remaining debt discount of approximately $139 thousand associated with the issuance of warrants. On April 30, 2020, these debentures were amended to provide for the conversion of the debentures into shares of the Company’s common stock instead of ComSovereign’s common stock. Additionally, the conversion price was changed from $7.50 per share to $2.268 per share. ComSovereign defaulted on these debentures during 2020, causing the interest rate to increase to 15% per annum, and the debentures and accrued interest to become due on-demand. Amounts recorded as debt discounts were fully amortized and recognized in interest expense during 2020, as a result of the debentures becoming due on-demand from the default event. As of December 31, 2020, an aggregate principal amount of $250 thousand was outstanding under these debentures. On January 26, 2021, the holder of these debentures converted the full principal of $250 thousand and all accrued interest of $34 thousand into 125,186 shares of common stock of the Company.

 

On July 2, 2020, the Company sold $1.0 million aggregate principal amount of 9% Senior Convertible Debentures to an accredited investor bearing interest at a rate of 9% per annum and a maturity date of September 30, 2020. During the third quarter of 2020, the maturity date of these debentures was extended to November 30, 2020. Accrued interest and principal were due on the maturity date, with interest paid in cash or, at the Company’s option, in shares of common stock at the conversion price of $3.00 per share. Upon an event of default, the interest rate automatically increased to 15% per annum. The debentures were convertible into shares of the Company’s common stock at a conversion price of $3.00 per share. The Company also issued warrants to purchase 33,334 shares of common stock that are exercisable for a purchase price of $3.00 per share, at any time on or prior to the earlier of December 31, 2022 or the second anniversary of the Company’s consummation of a public offering of its common stock in connection with an up-listing of the common stock to a national securities exchange. In connection with these debentures, the Company recognized a BCF charge of $131 thousand and calculated a fair value of $31 thousand associated with the issuance of warrants, both of which were recorded as debt discounts. During year ended December 31, 2020, the entire $163 thousand of the costs recorded as debt discounts were fully amortized and recognized in interest expense in the consolidated statement of operations. As of December 31, 2020, an aggregate principal amount of $1.0 million was outstanding and past due under these debentures. On January 26, 2021, the holder of these debentures converted the principal amount of $0.9 million into 300,000 shares of common stock of the Company. The remaining principal amount $0.1 million and accrued interest with a combined total of $161 thousand, was fully extinguished on January 26, 2021 at the rate of $4.15 per unit, as defined in our public offering, resulting in the issuance of, along with warrants to purchase up to 38,713 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

Certain agreements governing the secured notes payable, notes payable, senior debentures, convertible notes payable, and senior convertible debentures contain customary covenants, such as debt service coverage ratios, limitations on liens, dispositions, mergers, entry into other lines of business, investments and the incurrence of additional indebtedness.

 

All debt agreements are subject to customary events of default. If an event of default occurs with respect to the debt agreements and is continuing, the lenders may accelerate the applicable amounts due. The Company is in default on several debt agreements, and has accrued the proper penalties or disclosed any additional contingencies that resulted from the default.

 

Future maturities contractually required by the Company under long-term debt obligations are as follows for the years ending December 31:

 

(Amounts in thousands)  Total 
2022  $17,101 
2023   967 
2024   0 
2025   0 
2026   11,150 
Thereafter   150 
Total  $29,368